Chrysler May Use Batteries by A123

By

Neal E. Boudette

Updated Sept. 23, 2008 12:01 a.m. ET

Chrysler LLC, in a rush to develop new, fuel-efficient vehicles, is in advanced talks about using batteries made by A123 Systems Inc. in an electric car due to be launched by 2011, people familiar with the matter said.

Chrysler, which now depends on trucks, sport-utility vehicles and minivans for 75% of its sales, is scheduled to demonstrate its battery-powered car for the first time in public Tuesday.

A123, Watertown, Mass., is a seven-year-old company vying to break into the nascent market for lithium-ion battery packs for automobiles. A123 is in the running to supply batteries for the Chevrolet Volt, the electric car General Motors Corp.GM-1.25% is developing.

A deal to supply Chrysler would give a boost to A123's business ahead of a planned initial public stock offering. It registered for the offering in August.

A spokeswoman for Chrysler said the company "has nothing to announce at this time" about suppliers for its electric car. An A123 spokesman declined to comment, noting the company is in a quiet period because of its registration for an IPO.

Chrysler has been keeping its work on electric cars under tight wraps. But in recent weeks, as GM's Volt drew heavy media attention, Chrysler management became concerned that the company was being left out of the increasing buzz about electric vehicles, people familiar with the matter said.

GM has poured millions of dollars into its Volt project and has hyped the car in television commercials, although it is still uncertain whether the batteries for the car will be available on time. The Volt is set for launch in late 2010.

Tuesday, Chrysler will also demonstrate the electric car in a presentation that will be broadcast to dealers across the country. The company is hoping to energize dealers who have been hit hard by the downturn in auto sales this year.

Chrysler, which was acquired a year ago by private-equity group Cerberus Capital Management LP, has been searching for partners to help it keep pace with GM and others in the race to launch high-tech cars that cut fuel consumption and greenhouse-gas emissions.

The company had originally thought it might be able to have a working electric car by the spring, people familiar with the matter said. But with Chrysler burning cash and its sales falling, Cerberus has pushed the company to focus on cutting expenses, they said. The auto maker's sales have sagged this year as high gas prices spooked American consumers away from large vehicles like trucks and SUVs. Although Chief Executive Robert Nardelli has slashed costs and sold off assets, Chrysler is still on track to lose money this year.

Chrysler's push to develop electric vehicles began before Cerberus took an 80.1% stake in the company in August 2007, people familiar with the matter said.

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